   Chapter 8, Problem 17QP

Chapter
Section
Textbook Problem

The government says that firm X must pay $1,000 in taxes simply because it is in the business of producing a good. What cost curves, if any, does this tax affect? To determine Explain if tax rate increases what happens to cost curves. Explanation If tax increases the fixed costs by$1000, then it affects the total cost and total cost and average fixed cost.

Total cost:

Total cost can be calculated by using the following formula:

Total cost=Total fixed cost+Total variable cost        (1)

If the total fixed cost is $1,000 and the total variable cost is$15, then the total cost can be calculated by using the equation (1) as follows:

Total cost=Total fixed cost+Total variable cost=1,000+15=1,015

Thus, the value of total cost is \$1,015.

Marginal cost:

Marginal cost can be calculated by using the following formula:

Marginal cost=Total cost1Total

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